**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT UNDERSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

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| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**              |
|------------|------------|-----------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                            |
|       |       | **For the quarterly period ended April 2,  2005**                                                          |
|       |       |                                                                                                            |
| **OR**     |
|       |       |                                                                                                            |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**             |
| ** ** | ** ** | ** **                                                                                                      |
| ** ** | ** ** | **For the transition period from               to** |

 

**Commission File Number: 333-110531**

 

**NORCROSS SAFETY PRODUCTS L.L.C.**

**(Exact name of Registrant as Specified in itsCharter)**

 
| **Delaware**                                                    | ** ** | **61-1283304**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of Incorporation or  Organization) |       | (I.R.S. Employer Identification No.) |
| ** **                                                      | ** ** | ** **                           |
| **2211 York Road, Suite 215 Oak  Brook, Illinois 60523**        | ** ** | **60523**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |
| ** **                                                      | ** ** | ** **                           |
| Registrant’s telephone number, including area code:        |
| **(630) 572-5715**                                              |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes ý   No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).   Yes o   No ý

 

On May11, 2005 Norcross Safety Products L.L.C. had 100 units outstanding, all ofwhich were owned by a holding company.

 

 

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**NORCROSS SAFETY PRODUCTSL.L.C.**FORM 10-QQUARTERLY REPORT

**Forthe Quarterly Period Ended April 2, 2005**

 

**TABLE OF CONTENTS**

 
| PART I Financial Information      |   |
|-----------------------------------|--------|
|                              |   |   |   |   |   |
|                              |   | Item 1. |   | Financial  Statements (Unaudited) | 1 |
|                              |   |   |   |   |   |
|                              |   |   |   | Consolidated Balance Sheets | 1 |
|                              |   |   |   |   |   |
|                              |   |   |   | Consolidated  Statements of Operations | 2 |
|                              |   |   |   |   |   |
|                              |   |   |   | Consolidated  Statements of Cash Flows | 3 |
|                              |   |   |   |   |   |
|                              |   | Item  2. |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 16 |
|                              |   |   |   |   |   |
|                              |   | Item  3. |   | Quantitative  and Qualitative Disclosures About Market Risk | 23 |
|                              |   |   |   |   |   |
|                              |   | Item 4. |   | Controls and Procedures | 24 |
|                              |   |   |   |   |   |
| PART II Other Information         | 25     |
|                              |   |   |   |   |   |
|                              |   | Item 1. |   | Legal Proceedings | 25 |
|                              |   |   |   |   |   |
|                              |   | Item 6. |   | Exhibits and  Reports on Form 8-K | 27 |
|                              |   |   |   |   |   |
| Signatures                        | 28     |
|                              |   |   |   |   |   |
| **Form 10-Q Listing of Exhibits** | 29     |

 

i

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**PART I**FINANCIAL INFORMATION

 

**Item 1. Financial Statements (Unaudited)**

 

**NORCROSSSAFETY PRODUCTS L.L.C.**

**CONSOLIDATED BALANCE SHEETS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                                | ** ** | **December 31,  2004 (1)** | ** ** | **April 2,  2005** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------|------------|
| **Assets**                                                                                |       |                            |       |                    |       |
| Current  assets:                                                                          |       |                            |       |                    |       |
| Cash and  cash equivalents                                                                |       | $                               | 35,731     |                    | $          | 16,922 |   |
| Accounts  receivable, less allowance of $2,063 and $2,165 in 2004 and 2005,  respectively |       | 61,167                          |       | 69,707                  |       |
| Inventories                                                                               |       | 82,532                          |       | 83,503                  |       |
| Deferred  income taxes                                                                    |       | 60                              |       | 60                      |       |
| Prepaid  expenses and other current assets                                                |       | 3,183                           |       | 2,980                   |       |
| Total  current assets                                                                     |       | 182,673                         |       | 173,172                 |       |
| Property,  plant, and equipment, net                                                      |       | 51,809                          |       | 49,581                  |       |
| Deferred  financing costs, net                                                            |       | 9,394                           |       | 8,934                   |       |
| Goodwill,  net                                                                            |       | 132,662                         |       | 132,986                 |       |
| Other  intangible assets, net                                                             |       | 6,256                           |       | 6,080                   |       |
| Other  noncurrent assets                                                                  |       | 5,689                           |       | 5,491                   |       |
| Total assets                                                                              |       | $                               | 388,483    |                    | $          | 376,244 |   |
|                                                                                      |       |                            |       |                    |       |
| **Liabilities  and member’s equity**                                                 |       |                            |       |                    |       |
| Current  liabilities:                                                                     |       |                            |       |                    |       |
| Accounts  payable                                                                         |       | $                               | 17,871     |                    | $          | 20,315 |   |
| Accrued  expenses                                                                         |       | 28,127                          |       | 20,596                  |       |
| Current  maturities of long-term obligations                                              |       | 15,252                          |       | 2,690                   |       |
| Total  current liabilities                                                                |       | 61,250                          |       | 43,601                  |       |
| Pension,  post-retirement, and deferred compensation                                      |       | 22,923                          |       | 22,937                  |       |
| Long-term  obligations                                                                    |       | 238,314                         |       | 237,889                 |       |
| Other  noncurrent liabilities                                                             |       | 1,653                           |       | 1,646                   |       |
| Deferred  income taxes                                                                    |       | 4,799                           |       | 5,036                   |       |
| Minority  interest                                                                        |       | 142                             |       | 139                     |       |
|                                                                                      |       | 267,831                         |       | 267,647                 |       |
| Member’s  equity:                                                                    |       |                            |       |                    |       |
| Contributed  capital                                                                      |       | 116,060                         |       | 116,060                 |       |
| Accumulated  deficit                                                                      |       | (42,447                         | )          | (34,155                 | )          |
| Due from NSP  Holdings L.L.C.                                                             |       | (17,740                         | )          | (17,918                 | )          |
| Accumulated  other comprehensive income                                                   |       | 3,529                           |       | 1,009                   |       |
| Total member’s  equity                                                               |       | 59,402                          |       | 64,996                  |       |
| Total  liabilities and member’s equity                                               |       | $                               | 388,483    |                    | $          | 376,244 |   |

 

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(1)          December 31, 2004balances were obtained from audited financial statements.

 

*See notes to unauditedconsolidated financial statements.*

 

1

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**NORCROSSSAFETY PRODUCTS L.L.C.**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                        | ** ** | **Three months ended**  | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **April 3,  2004** | ** ** | **April 2,  2005** | ** ** |
| Net sales                                         |       | $                       | 109,073    |   | $ | 120,423 |   |
| Cost of  goods sold                               |       | 68,707                  |       | 75,602 |   |
| Gross profit                                      |       | 40,366                  |       | 44,821 |   |
| Operating  expenses:                              |       |                    |       |   |   |
| Selling                                           |       | 10,404                  |       | 11,857 |   |
| Distribution                                      |       | 5,368                   |       | 6,274 |   |
| General and  administrative                       |       | 9,968                   |       | 10,943 |   |
| Amortization  of intangibles                      |       | 126                     |       | 142 |   |
| Total  operating expenses                         |       | 25,866                  |       | 29,216 |   |
| Income from  operations                           |       | 14,500                  |       | 15,605 |   |
| Other  expense (income):                          |       |                    |       |   |   |
| Interest  expense                                 |       | 5,636                   |       | 5,599 |   |
| Interest  income                                  |       | (35                     | )          | (250 | ) |
| Other, net                                        |       | 534                     |       | 386 |   |
| Income  before income taxes and minority interest |       | 8,365                   |       | 9,870 |   |
| Income tax  expense                               |       | 1,033                   |       | 1,574 |   |
| Minority  interest                                |       | 5                       |       | 4 |   |
| Net income                                        |       | $                       | 7,327      |   | $ | 8,292 |   |

 

*Seenotes to unaudited consolidated financial statements.*

 

2

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**NORCROSSSAFETY PRODUCTS L.L.C.**

**CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(Amountsin Thousands) (Unaudited)**

 
| ** **                                                                     | ** ** | **Three months ended**  | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                     | ** ** | **April 3,  2004** | ** ** | **April 2,  2005** | ** ** |
| **Operating  activities**                                                      |       |                    |       |   |   |
| Net income                                                                     |       | $                       | 7,327      |   | $ | 8,292 |   |
| Adjustments  to reconcile net income to net cash used in operating activities: |       |                    |       |   |   |
| Depreciation                                                                   |       | 2,853                   |       | 2,705 |   |
| Amortization  of intangibles                                                   |       | 126                     |       | 142 |   |
| Amortization  of deferred financing costs                                      |       | 441                     |       | 461 |   |
| Amortization  of original issue discount                                       |       | 22                      |       | 25 |   |
| Deferred  income taxes                                                         |       | (46                     | )          | 237 |   |
| Minority  interest                                                             |       | 5                       |       | 4 |   |
| Changes in  operating assets and liabilities:                                  |       |                    |       |   |   |
| Accounts  receivable                                                           |       | (9,029                  | )          | (8,540 | ) |
| Inventories                                                                    |       | (1,315                  | )          | (969 | ) |
| Prepaid  expenses and other current assets                                     |       | (388                    | )          | 220 |   |
| Other  noncurrent assets                                                       |       | (30                     | )          | 73 |   |
| Accounts payable                                                               |       | 202                     |       | 2,445 |   |
| Accrued  expenses                                                              |       | (7,229                  | )          | (7,533 | ) |
| Pension,  postretirement, and deferred compensation                            |       | 787                     |       | 14 |   |
| Other  noncurrent liabilities                                                  |       | (2                      | )          | (6 | ) |
| Other                                                                          |       | 3                       |       | (6 | ) |
| Net cash  used in operating activities                                         |       | (6,273                  | )          | (2,436 | ) |
|                                                                           |       |                    |       |   |   |
| **Investing  activities**                                                      |       |                    |       |   |   |
| Purchase of  businesses, net of cash acquired                                  |       | (112                    | )          | (431 | ) |
| Purchases of  property, plant, and equipment                                   |       | (1,507                  | )          | (1,327 | ) |
| Due from NSP  Holdings L.L.C.                                                  |       | (178                    | )          | (178 | ) |
| Net cash  used in investing activities                                         |       | (1,797                  | )          | (1,936 | ) |
|                                                                           |       |                    |       |   |   |
| **Financing  activities**                                                      |       |                    |       |   |   |
| Payments of  debt                                                              |       | (937                    | )          | (13,013 | ) |
| Net cash  used in financing activities                                         |       | (937                    | )          | (13,013 | ) |
| Effect of  exchange rate changes on cash                                       |       | (474                    | )          | (1,424 | ) |
| Net decrease  in cash and cash equivalents                                     |       | (9,481                  | )          | (18,809 | ) |
| Cash and cash  equivalents at beginning of period                              |       | 16,341                  |       | 35,731 |   |
| Cash and  cash equivalents at end of period                                    |       | $                       | 6,860      |   | $ | 16,922 |   |

 

*See notes to unaudited consolidated financialstatements*

 

3

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**NORCROSS SAFETY PRODUCTS L.L.C.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Amounts in Thousands) (Unaudited)**

 

# **1.****             ****Basis of Presentation**

 

The accompanyingunaudited consolidated financial statements of Norcross Safety Products L.L.C.(the Company) have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information.Accordingly, they do not include all of the information and notes required byaccounting principles generally accepted in the United States for completefinancial statements.

 

In the opinion ofmanagement, all adjustments (consisting only of adjustments of a normal andrecurring nature) considered necessary for a fair presentation of the financialposition and results of operations have been included. Interim results are notnecessarily indicative of the results that might be expected for any otherinterim period or for the fiscal year ending December 31, 2005. Thefinancial statements presented should be read in conjunction with theconsolidated financial statements and footnotes thereto included in our 2004consolidated financial statements.

 

Certain accountbalances have been reclassified from the prior year to conform with currentyear presentation.

 

# **2.****             ****Inventories**

#  

Inventories consist of the following:

 
| ** **               | ** ** | **December 31,  2004** | ** ** | **April 2,  2005** | ** ** |
|--------------------------|------------|-----------------------------|------------|-------------------------|------------|
| At FIFO  cost:           | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Raw  materials           |       | $                           | 21,726     |                    | $          | 24,393 |   |
| Work in  process         |       | 10,419                      |       | 10,973                  |       |
| Finished  goods          |       | 52,045                      |       | 49,795                  |       |
|                     |       | 84,190                      |       | 85,161                  |       |
| Adjustment  to LIFO cost |       | (1,658                      | )          | (1,658                  | )          |
|                     |       | $                           | 82,532     |                    | $          | 83,503 |   |

 

4

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# **3.****             ****Debt**

#  

The Company’s debt consists of the following:

 
| ** **                                         | ** ** | **December 31,  2004** | ** ** | **April 2,  2005** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Revolving  credit facilities                       |       | $                           | —     |                    | $          | — |   |
| Term loan                                          |       | 97,725                      |       | 85,200                  |       |
| Senior  subordinated notes                         |       | 152,500                     |       | 152,500                 |       |
| European  term loans                               |       | 469                         |       | 358                     |       |
| Arbin seller  notes                                |       | 454                         |       | 430                     |       |
| Subordinated  seller notes                         |       | 3,121                       |       | 2,801                   |       |
| Capital  lease obligations                         |       | 207                         |       | 175                     |       |
| Unamortized  discount on senior subordinated notes |       | (910                        | )          | (885                    | )          |
|                                               |       | 253,566                     |       | 240,579                 |       |
| Less:  Current maturities of long-term obligations |       | 15,252                      |       | 2,690                   |       |
|                                               |       | $                           | 238,314    |                    | $          | 237,889 |   |

 

Aggregatematurities of long-term debt as of April 2, 2005, are as follows:

 
| 2006       |       | $       | 2,690   |       |
|------------|------------|---------|---------|------------|
| 2007       |       | 3,293   |    |
| 2008       |       | 1,223   |    |
| 2009       |       | 81,197  |    |
| 2010       |       | 34      |    |
| Thereafter |       | 152,142 |    |
|       | ** ** | $       | 240,579 | ** ** |

 

5

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# **4.****             ****Employee Benefit Plans**

#  

The following table sets forth the components of netperiodic benefit cost:

 
| ** **                          | ** ** | **Three months ended April 3,  2004** | ** ** | **Three months ended April 2,  2005** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **Pension  Benefits**                      | ** ** | **Post-retirement  Benefits**              | ** ** | **Pension  Benefits** | ** ** | **Post-retirement  Benefits** | ** ** |
|                                |       |                                       |       |                                       |       |   |   |   |   |
| Service cost                        |       | $                                          | 373        |                                       | $          | 7 |   | $ | 417 |   | $ | 6 |   |
| Interest  cost                      |       | 872                                        |       | 20                                         |       | 905 |   | 20 |   |
| Expected  return on plan assets     |       | (668                                       | )          | —                                     |       | (777 | ) | — |   |
| Amortization  of prior service cost |       | 1                                          |       | 4                                          |       | 1 |   | 4 |   |
| Amortization  of actuarial loss     |       | 212                                        |       | 21                                         |       | 284 |   | 22 |   |
|                                |       | $                                          | 790        |                                       | $          | 52 |   | $ | 830 |   | $ | 52 |   |

 

6

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# **5.****             ****Legal Proceedings**

#  

The Company is subject to various claimsarising in the ordinary course of business. Most of these lawsuits and claimsare product liability matters that arise out of the use of respiratory productlines manufactured by the Company’s North Safety Products subsidiary. As of April 2,2005, the Company’s North Safety Products subsidiary, along with itspredecessors and/or the former owners of such business were named as defendantsin approximately 864 lawsuits involving respirators manufactured and soldby it or its predecessors . The Company is also monitoring an additional 11lawsuits in which it feels that North Safety Products, its predecessors and/orthe former owners of such businesses may be named as defendants. Collectively,these 875 lawsuits represent a total of approximately 26,300 plaintiffs.Approximately 91% of these lawsuits involve plaintiffs alleging injuryresulting from exposure to silica dust, with the remainder alleging injuryresulting from exposure to other particles, including asbestos. These lawsuits typicallyallege that the purported injuries resulted in part from respirators that werenegligently designed or manufactured. Invensys plc (“Invensys”), formerly Siebeplc, is contractually obligated to indemnify the Company for any losses,including costs of defending claims, resulting from respiratory productsmanufactured or sold prior to the acquisition of North Safety Products in October 1998.

 

In addition, the Company’s North Safety Products subsidiary iscontractually entitled to indemnification from Norton Company, an affiliate ofSaint-Gobain, which owned the North Safety Products business prior to Invensys.Pursuant to a December 14, 1982 asset purchase agreement, SiebeNorton, Inc., a newly formed wholly-owned subsidiary of Norton Company,acquired the assets of Norton’s Safety Products Division and the stock of thiscompany was in turn acquired by Siebe Gorman Holdings PLC. Under the termsof the Agreement, Siebe Norton, Inc. did not assume any liability forclaims relating to products shipped by Norton Company prior to the closingdate. Moreover, Norton Company covenanted in the Agreement to indemnify SiebeNorton and its successors and assigns against any liability resulting from orarising out of any state of facts, omissions or events existing or occurring onor before the closing date, including, without limitation, any claims arisingfrom products shipped by Norton Company or any of its affiliates prior to theclosing date. Siebe Norton, whose name was subsequently changed to SiebeNorth Inc., was subsequently acquired by the Company as part of the 1998acquisition of the North Safety Products business from Invensys.

 

Despite these indemnification arrangements,the Company could potentially be liable for losses or claims relating toproducts manufactured prior to the October 1998 acquisition date ifInvensys fails to meet its obligations to indemnify the Company and the Companycould potentially be liable for losses and claims relating to products soldprior to January 10, 1983 if both Invensys and Norton fail to meet theirobligations to indemnify the Company. The Company could also be liable if thealleged exposure involved the use of a product manufactured by the Companyafter its October 1998 acquisition of the North Safety Products business.Invensys is currently handling the defense of all of the cases prior to October 1998in which North Safety Products, its predecessors and/or former owners of suchbusiness have been named as defendants. The Company is jointly with Invensyshandling the defense of all of the cases which allege exposure, includingperiods pre and post October 1998. The Company will individually handle the defense of all cases withexclusive post October 1998 exposure, however, it has not been involved ina case with exclusive post October 1998 exposure to date.  As of April 2, 2005, Invensys has sentus requests for reimbursement totaling $147, relating to settled cases in whichInvensys claims that the period of alleged exposure included periods after October 1998.Based on information provided to the Company by Invensys, the Company believesthat Invensys has made payments with respect to settlement of these claims of$4 for the three months ended April 2, 2005 . The Company believes thatInvensys has the ability to pay these claims based on its current financialposition, as publicly disclosed by Invensys.

 

Consistent withthe current environment being experienced by companies involved in silica andasbestos-related litigation, there has been an increase in the number ofasserted claims that could

 

7

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potentially involve theCompany. Based upon information provided to the Company by Invensys, theCompany believes activity related to these lawsuits was as follows for thethree months ended April 2, 2005:

 
| Beginning  lawsuits   |   | 858 |   |
|-----------------------|--------|-----|--------|
| New lawsuits          |   | 66  |   |
| Settlements           |   | (3  | )      |
| Dismissals  and other |   | (46 | )      |
| Ending  lawsuits      |   | 875 |   |

 

Plaintiffs have asserted specific dollarclaims in approximately a quarter of the approximately 864 cases pendingas of April 2, 2005 in which North Safety Products, its predecessorsand/or the former owners of such businesses have been named as defendants. Amajority of jurisdictions prohibit specifying damages in tort cases such asthese, and most of the remaining jurisdictions do not require such specification.In those cases in which plaintiffs choose to assert specific dollar amounts intheir complaints, brought in states that permit such pleading, the amountsclaimed are typically not meaningful as an indicator of a company’s potentialliability. This is because (1) the amounts claimed typically bear norelation to the level of the plaintiff’s injury, (2) the complaintstypically assert claims against numerous defendants, and (3) many casesare brought on behalf of plaintiffs who have not suffered any medical injury,and, ultimately, are resolved without any payment or payment of a smallfraction of the damages initially claimed. Of the 864 complaints maintained inthe Company’s records, 648 do not specify the amount of damages sought, 41generally allege damages in excess of $50, three allege compensatorydamages in excess of $50 and an unspecified amount of punitive damages, 92allege compensatory damages and punitive damages, each in excess of $25, threegenerally allege damages in excess of $100, 19 allege compensatory damages andpunitive damages, each in excess of $50, 29 generally allege damages of$15,000, one generally alleges damages not to exceed $290,000, one allegescompensatory damages and punitive damages, each in excess of $10, one alleges compensatoryand punitive damages, each in excess of $15, one alleges punitive damages inexcess of $25, one alleges punitive damages in excess of $50, 18 generallyallege damages in excess of $15, three generally allege damages in excess of$25, one generally alleges damages in excess of $4, and two allege compensatoryand punitive damages, each in excess of $15,000. The Company currently does nothave access to the complaints with respect to the previously mentionedadditional 11 monitored cases, and therefore do not know whether these casesallege specific damages, or if so, the amount of such damages, but are in theprocess of seeking to obtain such information. Due to the reasons noted above and to the indemnification arrangementsbenefiting the Company, it does not believe that the damage amounts specifiedin these complaints are a meaningful factor in any assessment of the Company’spotential liability.

 

The Company recorded a $1,250 liability andcharge to operating expenses to establish a reserve for respiratory claimsduring the year ended December 31, 2004, which remains outstanding as of April 2,2005.  The Company believes that thisreserve represents a reasonable estimate of the Company’s probable andestimable liabilities for claims alleging injury resulting from exposure tosilica dust and other particles, including asbestos, as determined by theCompany in consultation with an independent consultant.  The Company believes that a five-yearprojection of claims and defense costs is the most reasonable approach.  However, it is possible that the Company mayincur liabilities in excess of the amounts currently reserved.  This reserve will be re-evaluatedperiodically and additional charges or credits will be recorded to operatingexpenses as additional information becomes available.

 

8

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The Company is not otherwise involved in anymaterial lawsuits. The Company historically has not been required to pay anymaterial liability claims. The Company maintains insurance against productliability claims (with the exception of asbestosis and silicosis cases, forwhich coverage is not commercially available), but it is possible thatinsurance coverage will not continue to be available on terms acceptable to theCompany or that such coverage will not be adequate for liabilities actuallyincurred.  In connection with the NorthSafety Products acquisition, the Company recorded a $2,500 reserve forpotential uninsured product liability claims of North Safety Products forperiods prior to October 1998. The reserve was established at the date ofacquisition and relates to potential claims primarily associated with fallprotection products sold in Canada. Through December 31, 2003, the Companyincurred charges of $200 against this reserve, which reduced the balance to$2,300.  During 2004, the Company reducedthis reserve to $1,000 to reflect its current expectations of the liabilitybased on information available and recorded a $1,300 credit to operatingexpenses. The $1,000 reserve remains outstanding as of April 2, 2005. Thisreserve is re-evaluated periodically, and additional charges or credits will berecorded to operating expenses as additional information becomes available.

 

It is possible that the Company may incurliabilities in an amount in excess of amounts currently reserved. However,taking into account currently available information, historical experience, andthe Company’s indemnification from Invensys, but recognizing the inherentuncertainties in the projection of any future events, the Company believes thatthese suits or claims should not result in final judgments or settlements inexcess of its reserve.

 

# **6.****             ****Segment Data**

 

The followingtable presents information about the Company by segment:

 
| ** **                                 | ** ** | **General  Industrial** | ** **   | **Fire  Service** | ** ** | **Utility/  High  Voltage** | ** ** | **Corporate** | ** **   | **Eliminations** | ** ** | **Total**    | ** ** |
|--------------------------------------------|------------|-------------------------|--------------|-------------------|------------|-----------------------------|------------|---------------|--------------|------------------|------------|--------------|------------|
| **Three  Months Ended April 3, 2004** |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| Net  sales—third parties              |       | $                       |  76,464 |              | $          |  20,293                |       | $             |  12,316 |             | $          |  — |       | $ |  — |   | $ |  109,073 |   |
| Net sales—intersegment                |       | 2,722                   |         | —            |       | —                      |       | —        |         | (2,722           | )          | —       |       |
| Income  (loss) from operations             |       | 8,946                   |         | 3,941             |       | 2,717                       |       | (1,104        | )            | —           |       | 14,500       |       |
| **Three  Months Ended April 2, 2005** |       |                    |         |              |       |                        |       |          |         |             |       |         |       |
| Net sales—third  parties              |       | 83,220                  |         | 23,000            |       | 14,203                      |       | —        |         | —           |       | 120,423      |       |
| Net sales—intersegment                |       | 2,558                   |         | —            |       | —                      |       | —        |         | (2,558           | )          | —       |       |
| Income  (loss) from operations             |       | 8,812                   |         | 4,381             |       | 3,685                       |       | (1,273        | )            | —           |       | 15,605       |       |
|                                            |            |                         |              |                   |            |                             |            |               |              |                  |            |              |            |  |  |  |  |  |  |

 

9

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# **7.****             ****Subsidiary Guarantors**

#  

All of the Company’sdirect or indirect 100% owned active domestic subsidiaries, fully,unconditionally, jointly and severally guarantee its senior credit facility andthe senior subordinated notes. Separate financial statements of the guarantorsubsidiaries are not separately presented because, in the opinion ofmanagement, such financial statements are not material to investors. Thenon-guarantor subsidiaries include wholly owned subsidiaries of the Companyorganized under the laws of foreign jurisdictions and inactive subsidiaries,all of which are included in the consolidated financial statements. Thefollowing is summarized combining financial information for Norcross SafetyProducts L.L.C. on a stand-alone basis (NSP), Norcross Capital Corp. (NCC), theguarantor subsidiaries of the Company and the non-guarantor subsidiaries of theCompany:

 
| ** **                                           | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **April 2,  2005**                              |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Current  assets:                                     |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Cash and  cash equivalents                           |       | $       | 17,549     |    | $          | —                      |       | $                               | (3,020     | )                | $          | 2,393     |       | $ | — |   | $ | 16,922 |   |
| Accounts  receivable, net                            |       | 10,901  |       | —  |       | 33,068                      |       | 25,738                          |       | —           |       | 69,707    |       |
| Inventories                                          |       | 9,083   |       | —  |       | 35,112                      |       | 39,308                          |       | —           |       | 83,503    |       |
| Deferred  income taxes                               |       | —  |       | —  |       | —                      |       | 60                              |       | —           |       | 60        |       |
| Prepaid  expenses and other current assets           |       | 1,028   |       | —  |       | 1,112                       |       | 840                             |       | —           |       | 2,980     |       |
| Total  current assets                                |       | 38,561  |       | —  |       | 66,272                      |       | 68,339                          |       | —           |       | 173,172   |       |
| Property,  plant, and equipment, net                 |       | 4,579   |       | —  |       | 25,404                      |       | 19,598                          |       | —           |       | 49,581    |       |
| Deferred  financing costs, net                       |       | 8,934   |       | —  |       | —                      |       | —                          |       | —           |       | 8,934     |       |
| Goodwill,  net                                       |       | 426     |       | —  |       | 105,091                     |       | 27,469                          |       | —           |       | 132,986   |       |
| Other  intangible assets, net                        |       | 3,775   |       | —  |       | —                      |       | 2,305                           |       | —           |       | 6,080     |       |
| Investment  in subsidiaries                          |       | 173,702 |       | —  |       | 41,908                      |       | —                          |       | (215,610         | )          | —    |       |
| Other  noncurrent assets                             |       | —  |       | —  |       | 3,650                       |       | 1,841                           |       | —           |       | 5,491     |       |
| Total assets                                         |       | $       | 229,977    |    | $          | —                      |       | $                               | 242,325    |             | $          | 119,552   |       | $ | (215,610 | ) | $ | 376,244 |   |
| Current  liabilities:                                |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Accounts  payable                                    |       | $       | 2,707      |    | $          | —                      |       | $                               | 10,841     |             | $          | 6,767     |       | $ | — |   | $ | 20,315 |   |
| Accrued  expenses                                    |       | 5,922   |       | —  |       | 6,947                       |       | 7,727                           |       | —           |       | 20,596    |       |
| Current  maturities of long-term obligations         |       | 1,198   |       | —  |       | 276                         |       | 1,216                           |       | —           |       | 2,690     |       |
| Total  current liabilities                           |       | 9,827   |       | —  |       | 18,064                      |       | 15,710                          |       | —           |       | 43,601    |       |
| Pension,  post-retirement, and deferred compensation |       | 141     |       | —  |       | 22,104                      |       | 692                             |       | —           |       | 22,937    |       |
| Long-term  obligations                               |       | 237,617 |       | —  |       | 35                          |       | 237                             |       | —           |       | 237,889   |       |
| Intercompany  balances                               |       | (82,604 | )          | —  |       | 32,495                      |       | 50,109                          |       | —           |       | —    |       |
| Other  noncurrent liabilities                        |       | —  |       | —  |       | 1,593                       |       | 53                              |       | —           |       | 1,646     |       |
| Deferred  income taxes                               |       | —  |       | —  |       | —                      |       | 5,036                           |       | —           |       | 5,036     |       |
| Minority  interest                                   |       | —  |       | —  |       | —                      |       | 139                             |       | —           |       | 139       |       |
|                                                 |       | 155,154 |       | —  |       | 56,227                      |       | 56,266                          |       | —           |       | 267,647   |       |
| Member’s  equity:                               |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Contributed  capital                                 |       | 116,060 |       | —  |       | 148,417                     |       | 49,280                          |       | (197,697         | )          | 116,060   |       |
| Accumulated  deficit                                 |       | (34,155 | )          | —  |       | 19,617                      |       | (1,704                          | )          | (17,913          | )          | (34,155   | )          |
| Due from NSP  Holdings L.L.C.                        |       | (17,918 | )          | —  |       | —                      |       | —                          |       | —           |       | (17,918   | )          |
| Accumulated  other comprehensive loss                |       | 1,009   |       | —  |       | —                      |       | —                          |       | —           |       | 1,009     |       |
| Total member’s  equity                          |       | 64,996  |       | —  |       | 168,034                     |       | 47,576                          |       | (215,610         | )          | 64,996    |       |
| Total  liabilities and member’s equity          |       | $       | 229,977    |    | $          | —                      |       | $                               | 242,325    |             | $          | 119,552   |       | $ | (215,610 | ) | $ | 376,244 |   |

 

10

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| ** **                                          | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|-----------|------------|
| **December 31,  2004**                         |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Current  assets:                                    |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Cash and  cash equivalents                          |       | $       | 32,859     |    | $          | —                      |       | $                                 | (2,780     | )                | $          | 5,652     |       | $ | — |   | $ | 35,731 |   |
| Accounts  receivable, net                           |       | 10,940  |       | —  |       | 27,140                      |       | 23,087                            |       | —           |       | 61,167    |       |
| Inventories                                         |       | 9,572   |       | —  |       | 33,175                      |       | 39,785                            |       | —           |       | 82,532    |       |
| Deferred  income taxes                              |       | —  |       | —  |       | —                      |       | 60                                |       | —           |       | 60        |       |
| Prepaid  expenses and other current assets          |       | 947     |       | —  |       | 1,281                       |       | 955                               |       | —           |       | 3,183     |       |
| Total  current assets                               |       | 54,318  |       | —  |       | 58,816                      |       | 69,539                            |       | —           |       | 182,673   |       |
| Property,  plant and equipment, net                 |       | 4,722   |       | —  |       | 25,964                      |       | 21,123                            |       | —           |       | 51,809    |       |
| Deferred  financing costs, net                      |       | 9,394   |       | —  |       | —                      |       | —                            |       | —           |       | 9,394     |       |
| Goodwill,  net                                      |       | 426     |       | —  |       | 104,833                     |       | 27,403                            |       | —           |       | 132,662   |       |
| Other  intangible assets, net                       |       | 3,730   |       | —  |       | —                      |       | 2,526                             |       | —           |       | 6,256     |       |
| Investment  in subsidiaries                         |       | 167,009 |       | —  |       | 42,555                      |       | —                            |       | (209,564         | )          | —    |       |
| Other  noncurrent assets                            |       | —  |       | —  |       | 3,689                       |       | 2,000                             |       | —           |       | 5,689     |       |
| Total assets                                        |       | $       | 239,599    |    | $          | —                      |       | $                                 | 235,857    |             | $          | 122,591   |       | $ | (209,564 | ) | $ | 388,483 |   |
| Current  liabilities:                               |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Accounts  payable                                   |       | $       | 3,614      |    | $          | —                      |       | $                                 | 7,296      |             | $          | 6,961     |       | $ | — |   | $ | 17,871 |   |
| Accrued  expenses                                   |       | 10,937  |       | —  |       | 9,349                       |       | 7,841                             |       | —           |       | 28,127    |       |
| Current  maturities of long-term obligations        |       | 13,358  |       | —  |       | 567                         |       | 1,327                             |       | —           |       | 15,252    |       |
| Total  current liabilities                          |       | 27,909  |       | —  |       | 17,212                      |       | 16,129                            |       | —           |       | 61,250    |       |
| Pension,  post-retirement and deferred compensation |       | 147     |       | —  |       | 22,042                      |       | 734                               |       | —           |       | 22,923    |       |
| Long-term  obligations                              |       | 237,957 |       | —  |       | 68                          |       | 289                               |       | —           |       | 238,314   |       |
| Intercompany  balances                              |       | (85,816 | )          | —  |       | 33,954                      |       | 51,862                            |       | —           |       | —    |       |
| Other  noncurrent liabilities                       |       | —  |       | —  |       | 1,589                       |       | 64                                |       | —           |       | 1,653     |       |
| Deferred  income taxes                              |       | —  |       | —  |       | —                      |       | 4,799                             |       | —           |       | 4,799     |       |
| Minority  interest                                  |       | —  |       | —  |       | —                      |       | 142                               |       | —           |       | 142       |       |
|                                                |       | 152,288 |       | —  |       | 57,653                      |       | 57,890                            |       | —           |       | 267,831   |       |
| Member’s  equity:                              |       |    |       |    |       |                        |       |                              |       |             |       |      |       |
| Contributed  capital                                |       | 116,060 |       | —  |       | 148,417                     |       | 49,280                            |       | (197,697         | )          | 116,060   |       |
| Accumulated  deficit                                |       | (42,447 | )          | —  |       | 12,575                      |       | (708                              | )          | (11,867          | )          | (42,447   | )          |
| Due from NSP  Holdings L.L.C.                       |       | (17,740 | )          | —  |       | —                      |       | —                            |       | —           |       | (17,740   | )          |
| Accumulated  other comprehensive income             |       | 3,529   |       | —  |       | —                      |       | —                            |       | —           |       | 3,529     |       |
| Total member’s  equity                         |       | 59,402  |       | —  |       | 160,992                     |       | 48,572                            |       | (209,564         | )          | 59,402    |       |
| Total  liabilities and member’s equity         |       | $       | 239,599    |    | $          | —                      |       | $                                 | 235,857    |             | $          | 122,591   |       | $ | (209,564 | ) | $ | 388,483 |   |

 

11

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| ** **                                               | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Three  Months Ended April 2, 2005**               |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 17,941     |    | $          | —                      |       | $                               | 60,980     |             | $          | 41,502    |       | $ | — |   | $ | 120,423 |   |
| Intercompany                                             |       | 2,201   |       | —  |       | 2,148                       |       | 2,340                           |       | (6,689           | )          | —    |       |
| Net sales                                                |       | 20,142  |       | —  |       | 63,128                      |       | 43,842                          |       | (6,689           | )          | 120,423   |       |
| Cost of  goods sold                                      |       | 13,213  |       | —  |       | 40,527                      |       | 28,551                          |       | (6,689           | )          | 75,602    |       |
| Gross profit                                             |       | 6,929   |       | —  |       | 22,601                      |       | 15,291                          |       | —           |       | 44,821    |       |
| Operating  expenses:                                     |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 963     |       | —  |       | 5,657                       |       | 5,237                           |       | —           |       | 11,857    |       |
| Distribution                                             |       | 1,105   |       | —  |       | 2,382                       |       | 2,787                           |       | —           |       | 6,274     |       |
| General and  administrative                              |       | 1,931   |       | —  |       | 5,944                       |       | 3,068                           |       | —           |       | 10,943    |       |
| Amortization  of intangibles                             |       | 79      |       | —  |       | —                      |       | 63                              |       | —           |       | 142       |       |
| Total  operating expenses                                |       | 4,078   |       | —  |       | 13,983                      |       | 11,155                          |       | —           |       | 29,216    |       |
| Income from  operations                                  |       | 2,851   |       | —  |       | 8,618                       |       | 4,136                           |       | —           |       | 15,605    |       |
| Other  expense (income):                                 |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest  expense                                        |       | 5,551   |       | —  |       | 11                          |       | 37                              |       | —           |       | 5,599     |       |
| Interest  income                                         |       | (226    | )          | —  |       | —                      |       | (24                             | )          | —           |       | (250      | )          |
| Intercompany  charges                                    |       | (10,761 | )          | —  |       | (495                        | )          | 1,697                           |       | 9,559            |       | —    |       |
| Other, net                                               |       | (5      | )          | —  |       | (3                          | )          | 394                             |       | —           |       | 386       |       |
| Income  (loss) before income taxes and minority interest |       | 8,292   |       | —  |       | 9,105                       |       | 2,032                           |       | (9,559           | )          | 9,870     |       |
| Income tax  expense                                      |       | —  |       | —  |       | 94                          |       | 1,480                           |       | —           |       | 1,574     |       |
| Minority  interest                                       |       | —  |       | —  |       | —                      |       | 4                               |       | —           |       | 4         |       |
| Net income  (loss)                                       |       | $       | 8,292      |    | $          | —                      |       | $                               | 9,011      |             | $          | 548       |       | $ | (9,559 | ) | $ | 8,292 |   |

 

12

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| ** **                                               | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Three  months ended April 3, 2004**               |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Third party                                              |       | $       | 17,492     |    | $          | —                      |       | $                               | 55,799     |             | $          | 35,782    |       | $ | — |   | $ | 109,073 |   |
| Intercompany                                             |       | 2,318   |       | —  |       | 1,749                       |       | 2,508                           |       | (6,575           | )          | —    |       |
| Net sales                                                |       | 19,810  |       | —  |       | 57,548                      |       | 38,290                          |       | (6,575           | )          | 109,073   |       |
| Cost of  goods sold                                      |       | 12,847  |       | —  |       | 37,096                      |       | 25,339                          |       | (6,575           | )          | 68,707    |       |
| Gross profit                                             |       | 6,963   |       | —  |       | 20,452                      |       | 12,951                          |       | —           |       | 40,366    |       |
| Operating  expenses:                                     |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Selling                                                  |       | 931     |       | —  |       | 5,333                       |       | 4,140                           |       | —           |       | 10,404    |       |
| Distribution                                             |       | 938     |       | —  |       | 2,136                       |       | 2,294                           |       | —           |       | 5,368     |       |
| General and  administrative                              |       | 1,847   |       | —  |       | 5,119                       |       | 3,002                           |       | —           |       | 9,968     |       |
| Amortization  of intangibles                             |       | 66      |       | —  |       | —                      |       | 60                              |       | —           |       | 126       |       |
| Total  operating expenses                                |       | 3,782   |       | —  |       | 12,588                      |       | 9,496                           |       | —           |       | 25,866    |       |
| Income from  operations                                  |       | 3,181   |       | —  |       | 7,864                       |       | 3,455                           |       | —           |       | 14,500    |       |
| Other  expense (income):                                 |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Interest  expense                                        |       | 5,560   |       | —  |       | 17                          |       | 59                              |       | —           |       | 5,636     |       |
| Interest  income                                         |       | (31     | )          | —  |       | —                      |       | (4                              | )          | —           |       | (35       | )          |
| Intercompany  charges                                    |       | (9,639  | )          | —  |       | 460                         |       | 858                             |       | 8,321            |       | —    |       |
| Other, net                                               |       | —  |       | —  |       | 9                           |       | 525                             |       | —           |       | 534       |       |
| Income  (loss) before income taxes and minority interest |       | 7,291   |       | —  |       | 7,378                       |       | 2,017                           |       | (8,321           | )          | 8,365     |       |
| Income tax  (benefit) expense                            |       | (36     | )          | —  |       | (33                         | )          | 1,102                           |       | —           |       | 1,033     |       |
| Minority  interest                                       |       | —  |       | —  |       | —                      |       | 5                               |       | —           |       | 5         |       |
| Net income  (loss)                                       |       | $       | 7,327      |    | $          | —                      |       | $                               | 7,411      |             | $          | 910       |       | $ | (8,321 | ) | $ | 7,327 |   |

 

13

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| ** **                                           | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Three  months ended April 2, 2005**           |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| **Operating  activities**                            |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Net cash  (used in) provided by operating activities |       | $       | (5,525     | )       | $          | —                      |       | $                               | 3,605      |             | $          | (516      | )          | $ | — |   | $ | (2,436 | ) |
| **Investing  activities**                            |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Purchase of  businesses, net of cash acquired        |       | (126    | )          | —  |       | (275                        | )          | (30                             | )          | —           |       | (431      | )          |
| Purchase of  property, plant, and equipment          |       | (169    | )          | —  |       | (811                        | )          | (347                            | )          | —           |       | (1,327    | )          |
| Due from NSP  Holdings L.L.C.                        |       | (178    | )          | —  |       | —                      |       | —                          |       | —           |       | (178      | )          |
| Net cash  used in investing activities               |       | (473    | )          | —  |       | (1,086                      | )          | (377                            | )          | —           |       | (1,936    | )          |
| **Financing  activities**                            |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Payments of  debt                                    |       | (12,525 | )          | —  |       | (324                        | )          | (164                            | )          | —           |       | (13,013   | )          |
| Intercompany                                         |       | 3,213   |       | —  |       | (1,460                      | )          | (1,753                          | )          | —           |       | —    |       |
| Net cash  used in financing activities               |       | (9.312  | )          | —  |       | (1,784                      | )          | (1,917                          | )          | —           |       | (13,013   | )          |
| Effect of  exchange rate changes on cash             |       | —  |       | —  |       | (975                        | )          | (449                            | )          | —           |       | (1,424    | )          |
| Net decrease  in cash and cash equivalents           |       | (15,310 | )          | —  |       | (240                        | )          | (3,259                          | )          | —           |       | (18,809   | )          |
| Cash and  cash equivalents at beginning of period    |       | 32,859  |       | —  |       | (2,780                      | )          | 5,652                           |       | —           |       | 35,731    |       |
| Cash and  cash equivalents at end of period          |       | $       | 17,549     |    | $          | —                      |       | $                               | (3,020     | )                | $          | 2,393     |       | $ | — |   | $ | 16,922 |   |

 

14

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| ** **                                           | ** ** | **NSP** | ** ** | **NCC** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------|------------|---------|------------|---------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-----------|------------|
| **Three months ended April 3, 2004**            |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| **Operating activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Net cash  (used in) provided by operating activities |       | $       | (9,180     | )       | $          | —                      |       | $                               | 3,406      |             | $          | (499      | )          | $ | — |   | $ | (6,273 | ) |
| **Investing activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Purchase of  businesses, net of cash acquired        |       | (97     | )          | —  |       | —                      |       | (15                             | )          | —           |       | (112      | )          |
| Purchase of  property, plant, and equipment          |       | (212    | )          | —  |       | (908                        | )          | (387                            | )          | —           |       | (1,507    | )          |
| Due from NSP  Holdings L.L.C.                        |       | (178    | )          | —  |       | —                      |       | —                          |       | —           |       | (178      | )          |
| Net cash  used in investing activities               |       | (487    | )          | —  |       | (908                        | )          | (402                            | )          | —           |       | (1,797    | )          |
| **Financing activities**                             |       |    |       |    |       |                        |       |                            |       |             |       |      |       |
| Payments of  debt                                    |       | (325    | )          | —  |       | (320                        | )          | (292                            | )          | —           |       | (937      | )          |
| Intercompany                                         |       | 2,705   |       | —  |       | (1,889                      | )          | (816                            | )          | —           |       | —    |       |
| Net cash  provided by (used in) financing activities |       | 2,380   |       | —  |       | (2,209                      | )          | (1,108                          | )          | —           |       | (937      | )          |
| Effect of  exchange rate changes on cash             |       | —  |       | —  |       | (916                        | )          | 442                             |       | —           |       | (474      | )          |
| Net decrease  in cash and cash equivalents           |       | (7,287  | )          | —  |       | (627                        | )          | (1,567                          | )          | —           |       | (9,481    | )          |
| Cash and  cash equivalents at beginning of period    |       | 15,863  |       | —  |       | (1,989                      | )          | 2,467                           |       | —           |       | 16,341    |       |
| Cash and  cash equivalents at end of period          |       | $       | 8,576      |    | $          | —                      |       | (2,616                          | )          | $                | 900        |      | $          | — |   | $ | 6,860 |   |
|                                                      |            |         |            |         |            |                             |            |                                 |            |                  |            |           |            |  |  |  |  |  |  |

 

**8. Comprehensive Income**

 

Total comprehensive income for the threemonths ended April 3, 2004 and April 2, 2005 amounted to $5,928 and$5,772, respectively.

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Overview**

 

We are a leadingdesigner, manufacturer and marketer of branded products in the fragmentedpersonal protection equipment industry. We manufacture and market a full lineof personal protection equipment for workers in the general industrial, fireservice and utility/high voltage industries. We sell our products undertrusted, long-standing and well-recognized brand names, including *North*, *MorningPride*, *Ranger*, *Servus*, *Pro-Warrington*and *Salisbury*. Our broad productoffering includes, among other things, respiratory protection, protectivefootwear, hand protection, bunker gear and linemen equipment.

 

We classify our diverse product offeringsinto three primary operating segments:

 

General Industrial. We offer a diverseportfolio of leading products for a wide variety of industries, including themanufacturing, agriculture, automotive, construction, food processing andpharmaceutical industries and the military, under the *North*, *Ranger*and *Servus* brand names. Ourproduct offering is one of the broadest in the personal protection equipmentindustry and includes respiratory protection, protective footwear, handprotection, eye, head and face protection, first aid, hearing protection andfall protection. We sell our general industrial products primarily throughindustrial distributors.

 

Fire Service. We manufacture and market oneof the broadest lines of personal protection equipment for the fire servicesegment, offering firefighters head-to-toe protection. Our products includebunker gear, fire boots, helmets, gloves and other accessories. We market ourproducts under our *Total Fire Group*umbrella, using the brand names of *MorningPride*, *Ranger*, *Servus* and *Pro-Warrington*. We are the vendor of choice for many of thelargest fire departments in North America. We sell our fire service productsprimarily through specialized fire service distributors.

 

Utility/High Voltage. We manufacture andmarket one of the broadest lines of personal protection equipment for theutility/high voltage service segment under the *Salisbury*and *Servus* brands. Our products,including linemen equipment, gloves, sleeves and footwear, are designed toprotect workers from up to 40,000 volts of electricity. All of our productseither meet or exceed the applicable standards of ANSI and ASTM. We distributeour utility/high voltage products through specialized distributors and directto utilities and electrical contractors.

 

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**Resultsof Operations**

 

The followingtables set forth our results of operations in dollars and as a percentage ofnet sales for the three months ended April 3, 2004 and April 2, 2005.The data for the three months ended April 3, 2004 and April 2, 2005have been derived from our historical unaudited financial statements.

 
| ** **                                        | ** ** | **Three Months Ended**     | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|
| ** **                                        | ** ** | **April 3,  2004**    | ** ** | **April 2,  2005** | ** ** |
| ** **                                        | ** ** | **(dollars in thousands)** | ** ** |
| Net sales:                                        |       |                       |       |   |   |
| General  industrial                               |       | $                          | 76,464     |   | $ | 83,220 |   |
| Fire service                                      |       | 20,293                     |       | 23,000 |   |
| Utility/high  voltage                             |       | 12,316                     |       | 14,203 |   |
| Total net  sales                                  |       | 109,073                    |       | 120,423 |   |
| Cost of  goods sold                               |       | 68,707                     |       | 75,602 |   |
| Gross profit                                      |       | 40,366                     |       | 44,821 |   |
| Operating  expenses                               |       | 25,866                     |       | 29,216 |   |
| Income from  operations:                          |       |                       |       |   |   |
| General  industrial                               |       | 8,946                      |       | 8,812 |   |
| Fire service                                      |       | 3,941                      |       | 4,381 |   |
| Utility/high  voltage                             |       | 2,717                      |       | 3,685 |   |
| Corporate                                         |       | (1,104                     | )          | (1,273 | ) |
| Total income  from operations                     |       | 14,500                     |       | 15,605 |   |
| Other  expense (income):                          |       |                       |       |   |   |
| Interest  expense                                 |       | 5,636                      |       | 5,599 |   |
| Interest  income                                  |       | (35                        | )          | (250 | ) |
| Other, net                                        |       | 534                        |       | 386 |   |
| Income  before income taxes and minority interest |       | 8,365                      |       | 9,870 |   |
| Income tax  expense                               |       | 1,033                      |       | 1,574 |   |
| Minority  interest                                |       | 5                          |       | 4 |   |
| Net income                                        |       | $                          | 7,327      |   | $ | 8,292 |   |

 

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| ** **                                        | ** ** | **Three Months Ended**             | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|
| ** **                                        | ** ** | **April 3,  2004**            | ** ** | **April 2,  2005** | ** ** |
| ** **                                        | ** ** | **(as a percentage of net sales)** | ** ** |
| Net sales:                                        |       |                               |       |   |   |
| General industrial                                |       | 70.1                               | %          | 69.1 | % |
| Fire service                                      |       | 18.6                               | %          | 19.1 | % |
| Utility/high  voltage                             |       | 11.3                               | %          | 11.8 | % |
| Total net  sales                                  |       | 100.0                              | %          | 100.0 | % |
| Cost of  goods sold                               |       | 63.0                               | %          | 62.8 | % |
| Gross profit                                      |       | 37.0                               | %          | 37.2 | % |
| Operating  expenses                               |       | 23.7                               | %          | 24.3 | % |
| Income from  operations:                          |       |                               |       |   |   |
| General  industrial                               |       | 8.2                                | %          | 7.3 | % |
| Fire service                                      |       | 3.6                                | %          | 3.6 | % |
| Utility/high  voltage                             |       | 2.5                                | %          | 3.1 | % |
| Corporate                                         |       | (1.0                               | )%         | (1.1 | )% |
| Total income  from operations                     |       | 13.3                               | %          | 12.9 | % |
| Other  expense (income):                          |       |                               |       |   |   |
| Interest  expense                                 |       | 5.2                                | %          | 4.6 | % |
| Interest  income                                  |       | (0.0                               | )%         | (0.2 | )% |
| Other, net                                        |       | 0.5                                | %          | 0.3 | % |
| Income  before income taxes and minority interest |       | 7.6                                | %          | 8.2 | % |
| Income tax  expense                               |       | 0.9                                | %          | 1.3 | % |
| Minority  interest                                |       | 0.0                                | %          | 0.0 | % |
| Net income                                        |       | 6.7                                | %          | 6.9 | % |

 

***Three Months Ended April 2, 2005 asCompared to Three Months Ended April 3, 2004***

 

*Netsales.*Net salesincreased by $11.3 million, or 10.4%, from $109.1 million for thethree months ended April 3, 2004 to $120.4 million for the threemonths ended April 2, 2005. In our general industrial segment, net salesincreased by $6.7 million, or 8.8%, from $76.5 million for the threemonths ended April 3, 2004 to $83.2 million for the three monthsended April 2, 2005. This increase was primarily due to: higher net salesin the United States of $1.0, overall organic growth in our Canadian andEuropean operations of $2.8 million, and favorable exchange rates, which had animpact of $2.7 million. In our fire service segment, net sales increasedby $2.7 million, or 13.3%, from $20.3 million for the three monthsended April 3, 2004 to $23.0 million for the three months ended April 2,2005 reflecting strong market demand. In our utility/high voltage segment, netsales increased by $1.9 million, or 15.3%, from $12.3 million for thethree months ended April 3, 2004 to $14.2 million for the three monthsended April 2, 2005 primarily driven by strong market demand and newproduct penetration.

 

*Grossprofit.*Grossprofit increased by $4.4 million, or 11.0%, from $40.4 million forthe three months ended April 3, 2004 to $44.8 million for the threemonths ended April 2, 2005, primarily due to the $11.3 million, or10.4%, increase in net sales. Our gross profit margin of 37.2% for the threemonths ended April 2, 2005 was favorable to the 37.0% gross profit marginfor the three months ended April 3, 2004. In our general industrialsegment, gross profit increased by $2.5 million, or 8.7%, from$29.0 million for the three months ended April 3, 2004 to$31.5 million for the three months ended April 2, 2005. This increasewas primarily due to the overall net sales increase of $6.7 million, or 8.8%,and favorable exchange rates which had an impact of $1.0 million.

 

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In our fire servicesegment, gross profit increased by $0.7 million, or 11.5%, from $6.7million for the three months ended April 3, 2004 to $7.4 million forthe three months ended April 2, 2005, primarily due to the$2.7 million, or 13.3% increase in net sales. In our utility/high voltagesegment, gross profit increased by $1.2 million, or 24.4%, from$4.8 million for the three months ended April 3, 2004 to$6.0 million for the three months ended April 2, 2005, primarily dueto the $1.9 million, or 15.3% increase in net sales and improved manufacturingperformance.

 

*Operatingexpenses.*Operatingexpenses increased by $3.4 million, or 13.0%, from $25.8 million forthe three months ended April 3, 2004 to $29.2 million for the threemonths ended April 2, 2005. In our general industrial segment, operatingexpenses increased by $2.7 million, or 13.3%, from $20.0 million forthe three months ended April 3, 2004 to $22.7 million for the threemonths ended April 2, 2005, primarily due to higher exchange rates, whichhad an impact of $0.7 million; higher payroll and other administrativecosts; and increased variable distribution and selling expenses associated withthe $6.7 million, or 8.8% increase in net sales. In our fire service segment,operating expenses increased $0.3 million, or 12.0%, from$2.7 million for the three months ended April 3, 2004 to$3.0 million for the three months ended April 2, 2005, primarily dueto additional variable selling expenses associated with the $2.7 million,or 13.3%, increase in net sales. In our utility/high voltage segment, operatingexpenses increased by $0.2 million, or 9.7%, from $2.1 million for thethree months ended April 3, 2004 to $2.3 million for the three monthsended April 2, 2005, primarily due to higher selling expenses. Ourcorporate expense increased $0.2 million, or 15.3%, primarily due tohigher payroll and administrative expenses including costs associated withpublic reporting and Sarbanes-Oxley Act related compliance requirements.

 

*Incomefrom operations.*Incomefrom operations increased by $1.1 million, or 7.6%, from$14.5 million for the three months ended April 3, 2004 to$15.6 million for the three months ended April 2, 2005. As apercentage of net sales, income from operations decreased from 13.3% for thethree months ended April 3, 2004 to 12.9% for the three months ended April 2,2005. In our general industrial segment, income from operations decreased by$0.1 million, or 1.5%, from $8.9 million for the three months ended April 3,2004 to $8.8 million for the three months ended April 2, 2005 ashigher net sales of $6.7 million, or 8.8%, were offset by higher overalloperating expenses. In our fire service segment, income from operationsincreased by $0.4 million, or 11.2%, from $4.0 million for the threemonths ended April 3, 2004 to $4.4 million for the three months endedApril 2, 2005, primarily due to the $2.7 million, or 13.3%, increasein net sales. In our utility/high voltage segment, income from operationsincreased by $1.0 million, or 35.6%, from $2.7 million for the threemonths ended April 3, 2004 to $3.7 million for the three months endedApril 2, 2005, primarily due to higher net sales of $1.9 million, or 15.3%and improved manufacturing performance. Our corporate expenses increased$0.2 million, or 15.3%, primarily due to higher payroll and administrativeexpenses including costs associated with public reporting and Sarbanes-OxleyAct related compliance requirements.

 

Included in incomefrom operations for the three months ended April 2, 2005 and April 3,2004 were depreciation and amortization expenses of $2.8 million and$3.0 million, respectively. Of these amounts, $2.3 million,$0.1 million, and $0.4 million were attributable to the generalindustrial, fire service, and utility/high voltage segments, respectively, forthe three months ended April 2, 2005 and $2.4 million,$0.1 million, $0.3 million and $0.2 million were attributable tothe general industrial, fire service, utility/high voltage, and corporatesegments for the three months ended April 3, 2004.

 

*Interestexpense.*Interestexpense was consistent at $5.6 million for the three months ended April 3,2004 and the three months ended April 2, 2005. Interest expense incurredby NSP and the subsidiary guarantors totaled $5.6 million for both thethree months ended April 3, 2004 and the three months ended April 2,2005.

 

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*Other,net.*Other, netdecreased by $0.1 from $0.5 million for the three months ended April 3,2004 to $0.4 million for the three months ended April 2, 2005.

 

*Incometax expense.*Incometax expense increased by $0.6 million, from $1.0 million for thethree months ended April 3, 2004 to $1.6 million for the three monthsended April 2, 2005, as a result of higher income tax expense levels atforeign operations.

 

*Netincome.*Netincome increased by $1.0 million, or 13.2%, from $7.3 million for thethree months ended April 3, 2004 to $8.3 million for the three monthsended April 2, 2005. This was the result of the reasons discussed above.

 

**Liquidityand Capital Resources**

 

We havehistorically used internal cash flow from operations, commercial borrowings onour lines of credit, seller notes, investments from our equityholders andcapital markets transactions to fund our operations, acquisitions, capitalexpenditures and working capital requirements. For the three months ended April 2,2005 and April 3, 2004, cash used in operating activities was$2.4 million and $6.3 million, respectively. The $3.9 million improvementwas primarily attributable to the $1.1 increase in income from operations andfavorable working capital activity.

 

Historically, our principal uses of cash havebeen capital expenditures, acquisitions and working capital. Our capitalexpenditures were $1.3 million for the three months ended April 2,2005 and $1.5 million for the three months ended April 3, 2004. Duringthe three months ended April 2, 2005 and April 3, 2004, we fundedcash to NSP Holdings L.L.C. of $0.2 million.

 

As of April 2, 2005, we had workingcapital of $129.6 million and cash of $16.9 million. We maintaininventory levels sufficient to satisfy customer orders on demand, withgenerally a three month supply on hand. Bunker gear is an exception and isgenerally made to order. Our accounts receivable terms are generally30 days, net.

 

For the three months ended April 2,2005, net cash used in financing activities was $13.0 million,representing payments on long term debt obligations, including an excess cashflow sweep payment under the terms of the senior credit facility of $12.2million. For the three months ended April 3, 2004, net cash used in financingactivities was $0.9 million, representing payments on long term debtobligations.

 

On March 21,2003, we entered into a senior credit facility which provides for aggregateborrowings by us of $160.0 million and C$10.0 million, consisting of(1) a $30.0 million United States revolving credit facility;(2) a C$10.0 million Canadian revolving credit facility; and(3) a $130.0 million term loan. As of April 2, 2005, there wasapproximately $85.2 million of outstanding indebtedness under the seniorcredit facility and approximately $36.9 million of available borrowingsunder the revolving facilities. We used the proceeds of our senior creditfacility to refinance our then existing senior credit facility and for generalcorporate purposes, including working capital, refinancings, acquisitions,investments and capital expenditures.

 

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As of April 2,2005, borrowings under the senior credit facility bore interest at a weightedaverage rate of 6.1%. Prior to March 20, 2008, we may borrow, repay andre-borrow under the revolving facilities without payment of penalty or premium.The term loan is payable in quarterly installments totaling $1.3 millionper annum, with the remainder due on March 20, 2009. All of the domesticborrowers’ obligations under the senior credit facility are secured by a pledgeof all our equity securities and the equity securities of our direct andindirect domestic subsidiaries, substantially all of our tangible andintangible assets and 65% of the equity securities of, or equity interest in,each of our foreign subsidiaries. All of the obligations under the seniorcredit facility are guaranteed by all of our present and future domesticsubsidiaries, and all of the Canadian borrower’s obligations under the seniorcredit facility are guaranteed by all of our present and future Canadiansubsidiaries.

 

Our senior credit facility contains, and theindenture governing the notes contains, numerous restrictive covenants,including, among other things, covenants that limit our ability to incurindebtedness, use our assets as security in other transactions, makefundamental changes to our capital structure, dispose of assets, pay dividends,make capital expenditures, enter into transactions with affiliates and enterinto sale and leaseback transactions. In addition, our senior credit facilityrequires us to meet specified financial ratios and tests.

 

We believe thatour internal cash flows and borrowings under the revolving portions of oursenior credit facility will provide us with sufficient liquidity and capitalresources to meet our current and future financial obligations for theforeseeable future, including funding our operations, debt service and capitalexpenditures. Our future operating performance will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond our control. If our future cash flow from operations and othercapital resources are insufficient to pay our obligations as they mature or tofund our liquidity needs, we may be forced to reduce or delay our businessactivities and capital expenditures, sell assets, obtain additional debt orequity capital or restructure or refinance all or a portion of our debt,including the notes, on or before maturity. We cannot assure you that we wouldbe able to accomplish any of these alternatives on a timely basis or onsatisfactory terms, if at all. In addition, the terms of our existing andfuture indebtedness, including our senior subordinated notes and our seniorcredit facility, may limit our ability to pursue any of these alternatives.

 

**Forward-LookingStatements**

 

This Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontains forward-looking information. These statements reflect management’sexpectations, estimates, and assumptions based on information available at thetime of the statement. Forward-looking statements include, but are not limitedto, statements regarding future events, plans, goals, objectives, andexpectations. The words ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘plan,’’‘‘intent,’’ ‘‘likely,’’ ‘‘will,’’ ‘‘should,’’ and similar expressions areintended to identify forward-looking statements. Forward-looking statements arenot guarantees of future performance and involve risks, uncertainties, andother

 

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factors, including thoseset forth below, which may cause our actual results, performance, orachievements to be materially different from any future results, performance,or achievements expressed or implied by those statements. Important factorsthat could cause our actual results, performance, or achievements to bematerially different from any future results, performance, or achievementsexpressed or implied by those statements include, but are not limited to: (i)our high degree of leverage and significant debt service obligations; (ii) theimpact of current and future laws and governmental regulations affecting us orour product offerings; (iii) the impact of governmental spending; (iv) ourability to retain existing customers, maintain key supplier status with thosecustomers with which we have achieved such status, and obtain new customers;(v) the highly competitive nature of the personal protection equipmentindustry; (vi) any future changes in management; (vii) acceptance by consumersof new products we develop or acquire; (viii) the importance and costs ofproduct innovation; (ix) unforeseen problems associated with internationalsales, including gains and losses from foreign currency exchange andrestrictions on the efficient repatriation of earnings; (x) theunpredictability of patent protection and other intellectual property issues;(xi) cancellation of current orders; (xii) the outcome of pending productliability claims and the availability of indemnification for those claims;(xiii) general risks associated with the personal protection equipmentindustry; and (xiv) the successful integration of acquired companies on economicallyacceptable terms. We undertake no obligation to publicly update or revise anyforward-looking statements to reflect changed assumptions, the occurrence ofanticipated or unanticipated events, or changes to future results over time.

 

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

 

There have been nomaterial changes to our exposure to market risk since December 31, 2004.

 

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**Item 4.Controls and Procedures**

 

Based on their evaluationas of the end of the period covered by this quarterly report on Form 10-Q, ourChief Executive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) areeffective.  There was no change in ourinternal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) identified in connection with the evaluationrequired by Rule 13a-15(d) of the Exchange Act that occurred during the periodcovered by this quarterly report on Form 10-Q that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting.

 

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**PART IIOTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

As of April 2, 2005, our North SafetyProducts subsidiary, along with its predecessors and/or the former owners ofsuch business were named as defendants in approximately 864 lawsuits involvingrespirators manufactured and sold by it or its predecessors. We are alsomonitoring an additional 11 lawsuits in which we feel that North SafetyProducts, its predecessors and/or the former owners of such businesses may benamed as defendants. Collectively, these 875 lawsuits represent approximately26,300 (excluding spousal claims) plaintiffs. Approximately 91% of theselawsuits involve plaintiffs alleging injury resulting from exposure to silicadust, with the remainder alleging injury from exposure to other particles,including asbestos. These lawsuits typically allege that the purported injuriesresulted in part from respirators that were negligently designed and/ormanufactured. The defendants in these lawsuits are often numerous, and include,in addition to respirator manufacturers, employers of the plaintiffs andmanufacturers of sand (used in sand blasting) and asbestos.  We acquired our North Safety Products subsidiaryon October 2, 1998 from Siebe plc. In connection with the acquisition, Siebe, which was subsequently mergedwith BTR plc (now known as “Invensys plc”), contractually agreed toindemnify us for any losses, including costs of defending claims, resultingfrom respiratory products manufactured or sold prior to our acquisition ofNorth Safety Products in October 1998.

 

In addition, ourNorth Safety Products subsidiary is contractually entitled to indemnificationfrom Norton Company, an affiliate of Saint-Gobain, which owned the North SafetyProducts business prior to Invensys. Pursuant to a December 14, 1982 assetpurchase agreement, Siebe Norton, Inc., a newly formed wholly-ownedsubsidiary of Norton Company, acquired the assets of Norton’s Safety ProductsDivision and the stock of this company was in turn acquired by Siebe GormanHoldings PLC. Under the terms of the Agreement, Siebe Norton, Inc. did notassume any liability for claims relating to products shipped by Norton Companyprior to the closing date. Moreover, Norton Company covenanted in the Agreementto indemnify Siebe Norton and its successors and assigns against any liabilityresulting from or arising out of any state of facts, omissions or eventsexisting or occurring on or before the closing date, including, withoutlimitation, any claims arising from products shipped by Norton Company or anyof its affiliates prior to the closing date. Siebe Norton, whose name wassubsequently changed to Siebe North Inc., was subsequently acquired by us aspart of the 1998 acquisition of the North Safety Products business fromInvensys.

 

Despite theseindemnification arrangements, we could potentially be liable for losses orclaims relating to products manufactured prior to the October 1998acquisition date if Invensys fails to meet its obligations to indemnify us andwe could potentially be liable for losses and claims relating to products soldprior to January 10, 1983 if both Invensys and Norton fail to meet theirobligations to indemnify us. We could also be liable if the alleged exposureinvolved the use of a product manufactured by us after our October 1998acquisition of the North Safety Products business. Invensys is currentlyhandling the defense of all of the cases prior to October 1998 in which NorthSafety Products, its predecessors and/or the former owners of such businesseshave been named as defendants. We are jointly with Invensys handling thedefense of all of the cases which allege exposure including periods pre andpost October 1998. We will individually handle the defense of all caseswith exclusive post October 1998 exposure, however, we have not beeninvolved in a case with exclusive post October 1998 exposure to date. Asof April 2, 2005, Invensys has sent us requests for reimbursement totaling$146,696, relating to settled cases in which Invensys claims that the period ofalleged exposure included periods after October 1998. To date, we have notreimbursed Invensys for these claims, as we are currently pursuing negotiationsregarding the allocation of costs and the determination of the alleged exposureperiods. Based on information provided to us by Invensys, we believe thatInvensys has made payments with respect to settlement of these claims of $3,550for the three months ended April 2, 2005.

 

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Consistentwith the current environment being experienced by companies involved in silicaand asbestos-related litigation, there has been an increase in the number ofasserted claims that could potentially involve us. Based upon informationprovided to us by Invensys, we believe activity related to these lawsuits wasas follows for the three months ended April 2, 2005:

 
| Beginning  lawsuits   |   | 858 |   |
|-----------------------|--------|-----|--------|
| New lawsuits          |   | 66  |   |
| Settlements           |   | (3  | )      |
| Dismissals  and other |   | (46 | )      |
| Ending  lawsuits      |   | 875 |   |

 

Plaintiffs have asserted specific dollar claims inless than a quarter of the approximately 864 cases pending as of April 2,2005, in which North Safety Products, its predecessors and/or the former ownersof such businesses have been named as defendants. A majority of jurisdictionsprohibit specifying damages in tort cases such as these, and most of theremaining jurisdictions do not require such specification. In those cases inwhich plaintiffs choose to assert specific dollar amounts in their complaints,brought in states that permit such pleading, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf ofplaintiffs who have not suffered any medical injury, and, ultimately,are resolved without any payment or payment of a small fraction of the damagesinitially claimed. Of the 864 complaints maintained in our records, 648 do notspecify the amount of damages sought, 41 generally allege damages in excess of$50,000, three allege compensatory damages in excess of $50,000 and anunspecified amount of punitive damages, 92 allege compensatory damages andpunitive damages, each in excess of $25,000, three generally allege damages inexcess of $100,000, 19 allege compensatory damages and punitive damages, eachin excess of $50,000, 29 generally allege damages of $15.0 million, onegenerally alleges damages not to exceed $290.0 million, one allegescompensatory damages and punitive damages, each in excess of $10,000, onealleges compensatory and punitive damages, each in excess of $15,000, onealleges punitive damages in excess of $25,000, one alleges punitive damages inexcess of $50,000, 18 generally allege damages in excess of $15,000, threegenerally allege damages in excess of $25,000, one generally alleges damages inexcess of $4,000 and two allege compensatory and punitive damages each inexcess of $15.0 million. We currently do not have access to the complaints withrespect to the previously mentioned additional 11 monitored cases, andtherefore do not know whether these cases allege specific damages, and if so,the amount of such damages, but are in the process of seeking to obtain suchinformation. Due to the reasons noted above and to the indemnificationarrangements benefiting us, we do not believe that the damage amounts specifiedin these complaints are a meaningful factor in any assessment of our potentialliability.

 

Bankruptcy filingsof companies with asbestos and silica-related litigation could increase ourcost over time. If we were found liable in these cases and either Invensys orNorton failed to meet its indemnification obligations to us or the suitinvolved products manufactured by us after our October 1998 acquisition ofNorth Safety Products, it would have a material adverse effect on our business.

 

During the yearended December 31, 2004, we recorded a $1.25 million liability and chargeto operating expenses to establish a reserve for respiratory claims, whichremains outstanding as of April 2, 2005. We believe that this reserverepresents a reasonable estimate of our probable and estimable liabilities forproduct claims alleging injury resulting from exposure to silica dust and otherparticles, including asbestos, as determined by us in consultation with anindependent consultant. We believe that a five-year projection of claims anddefense costs is the most reasonable approach. However, it is possible that we may incur liabilities in excess of theamounts currently reserved. This reserve will be re-evaluated periodically andadditional charges or credits will be recorded to operating expenses asadditional information becomes available.

 

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We are nototherwise involved in any material lawsuits. We historically have not been required to pay any material liabilityclaims.  We maintain insurance againstproduct liability claims (with the exception of asbestosis and silicosis cases,for which coverage is not commercially available), but it is possible that insurancecoverage will not continue to be available on terms acceptable to us or thatsuch coverage will not be adequate for liabilities actually incurred. Inconnection with the North Safety Products acquisition, we recorded a$2.5 million reserve for potential uninsured product liability claims ofNorth Safety Products for periods prior to October 1998. This reserve wasestablished at the date of acquisition and relates to potential claimsprimarily associated with fall protection products sold in Canada. Through December 2003,we incurred charges of approximately $0.2 million against this reserve, whichreduced the reserve balance to $2.3 million. During 2004, we reduced thisreserve to $1.0 million to reflect our current expectations of the liabilitybased on information available and recorded a $1.3 million credit to operatingexpenses. The $1.0 million reserve remains outstanding as of April 2,2005. This reserve is re-evaluated periodically, and additional charges orcredits will be recorded to operating expenses as additional information becomesavailable.

 

It is possiblethat we may incur liabilities in an amount in excess of amounts currentlyreserved. However, taking into account currently available information,historical experience, and our indemnification from Invensys, but recognizingthe inherent uncertainties in the projection of any future events, we believethat these suits or claims should not result in final judgments or settlementsin excess of our reserve.

 

**Item 6.Exhibits**

 

Exhibits

 
| **Exhibit No.** | ** ** | **Description**                                                                                          |
|-----------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **      | ** ** | ** **                                                                                               |
| 31.1            |       | Certification of Chief Executive Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 |
|            |       |                                                                                                     |
| 31.2            |       | Certification of Chief Financial Officer Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002 |
|            |       |                                                                                                     |
| 32.1            |       | Certification of Chief Executive Officer Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 |
|            |       |                                                                                                     |
| 32.2            |       | Certification of Chief Financial Officer Pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, Norcross Safety ProductsL.L.C. has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|          | NORCROSS SAFETY  PRODUCTS L.L.C. |
|---------------|----------------------------------|
|          |                             |   |
|          |                             |   |
| May 11,  2005 | By:                              | /s/ ROBERT  A. PETERSON |   |
|          |                             | Robert A. Peterson |
|          |                             | President, Chief Executive Officer and  Manager |
|          |                             | (Principal Executive Officer) |
|          |                             |   |
|          |                             |   |
| May 11,  2005 | By:                              | /s/ DAVID F. MYERS, JR. |   |
|          |                             | David F. Myers, Jr. |
|          |                             | Executive Vice President, Chief  Financial Officer, |
|          |                             | Secretary and Manager |
|          |                             | (Principal Financial and Accounting  Officer) |
|               |                                  |  |  |  |

 

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**NORCROSS SAFETY PRODUCTS L.L.C.**

**FORM 10-Q LISTING OF EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                      |
| 31.1            |       | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|            |       |                                                                                                      |
| 31.2            |       | Certification of Chief  Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|            |       |                                                                                                      |
| 32.1            |       | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |
|            |       |                                                                                                      |
| 32.2            |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |

 

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